Coda Genomics, a Laguna Hills, Calif., biotechnology company founded in 2005, concentrates on a thorny but little-realized challenge in biotechnology: Genetic engineering is easy. Protein manufacture is hard.

The biotech industry was founded on the science of recombinant DNA, which is essentially the trick of taking a gene from one species (such as a human) and inserting it into the genome of another (say, the microbe E. coli). Since many genes are essentially templates for producing proteins, this has been a handy technique for making, or “expressing,” vast quantities of natural human proteins such as insulin by harnessing the production facilities already found inside cells.

Inserted genes, however, don’t always behave as expected. Among other things, their protein-production engines can stutter and sometimes stop when incompatible genetic signals encoded in the transplanted genes clash with the host cell’s own internal machinery. Coda aims to ameliorate such problems by smoothing out the effect of one particular set of crossed signals that control when and for how long cells “pause” the protein-producing activity of individual genes.

The company doesn’t go into a lot of detail as to how it accomplishes this, but it lists an impressive array of blue-chip customers including Genentech, Eli Lilly and Invitrogen, all of whom are keenly interested in ways to improve the manufacture of recombinant proteins as drugs or diagnostics. Coda also sells kits that allow customers to “optimize” synthetic genes — that is, stretches of artificially assembled DNA designed to produce particular proteins — to improve their output once inserted into host cells.

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Now, however, it appears that Coda has higher ambitions. The company today announced that it raised $7 million in a third funding round, and hinted that the proceeds will allow it to shop for a drug candidate of its own. (The company’s release calls this “obtain[ing] new high value intellectual property positions, including a therapeutic development candidate.”) I doubt it’s going too far out on a limb to suppose that Coda plans to acquire a cast-off or otherwise “failed” protein drug that’s proven difficult to manufacture in order to make it more cost-effectively.

If so, it’s certainly hard to blame them; the lottery mentality of biotech investors — VCs most certainly included — tends to reward companies that pursue their own drugs while punishing those that might otherwise concentrate on offering useful but unexciting services to other drug manufacturers. I’m not convinced this is the most efficient use of the industry’s resources, but given how little economic logic actually underpins biotechnology in the first place, it seems pretty much par for the course.

There’s more detail on Coda’s early history in this March 2006 VentureWire story (subscription required). OVP Venture Partners led the round, joined by Monitor Ventures, Tech Coast Angels, and Life Science Angels.